Investment Highlights

• We maintain HOLD on PPB Group with a lower fair value of RM18.55/share (vs. RM19.60/share previously) based on a FY22F PE of 18.0x and a 3% premium for a four-star ESG rating.

• We have reduced PPB’s FY22F net profit by 5.3% as the group’s dividend income from overseas units such as Wilmar International will be taxed from FY22F onwards. We have assumed an effective tax rate of 12.0% for PPB instead of 7.0% previously.

• PPB’s annualised 9MFY21 results were 8% above our forecast but within consensus estimates. We have raised PPB’s FY21E net profit by 9.9% to account for a higher than expected share of net profit in associates (mainly Wilmar International) and lower than estimated effective tax rate of 3% vs. 7% previously.

• After a weak 2QFY21, which was affected by a RM87.9mil pre-tax loss in the grains and agribusiness division, PPB’s net profit rebounded by 122.3% QoQ to RM407.9mil in 3QFY21.

• PPB benefited from a higher share of earnings in Wilmar International and a turnaround in the grains and agribusiness unit in 3QFY21. The latter recorded a pre-tax profit of RM11.3mil in 3QFY21 vs. a pre-tax loss of RM87.9mil in 2QFY21 on the back of timely purchases of feedstock and a recovery in demand for flour products in Malaysia.

• The grains and agribusiness division recorded a pre-tax profit margin of 1.1% in 3QFY21 compared with –10.5% in 2QFY21.

• Performance of the film exhibition and distribution division remained unexciting QoQ in 3QFY21. The unit registered a larger pre-tax loss of RM36.2mil in 3QFY21 vs. RM32.9mil in 2QFY21 as cinemas only resumed operations in mid-September 2021.

• Comparing 9MFY21 against 9MFY20, PPB’s net profit rose by 6.7% to RM993.6mil underpinned mainly by Wilmar International. Wilmar benefited from higher palm refining margins and palm product prices in 9MFY21.

• PPB’s own operations were affected by higher costs of wheat and temporary closure of the cinema operations due to MCO 3.0. Pre-tax profit of the grains and agribusiness division plunged to RM12.7mil in 9MFY21 from RM151.4mil in 9MFY21 due to fair value losses of RM51.2mil on hedging instruments. Pre-tax profit margin of the unit was 0.5% in 9MFY21 against 6.3% in 9MFY20.

Source: AmInvest Research - 1 Dec 2021